Data, Information Imperative for Efficient Fuel Production

Q: What differentiates S&P Global Commodity Insight from other companies offering strategic analysis? 

A: The company’s global vantage point as well as the fact that it is not only focused on energy, power or renewables but that it also works with other industries, such as automotive, are important differentiators. In the end, all these industries interact with each other, which gives us a very comprehensive view of what is happening in the market. S&P is consistently reasoned, whether it is operating globally, regionally or locally. It considers all relevant economic and political risks when reviewing the energy sector. 

Q: What has been the impact of sustainability and ESG goals on S&P Global Commodity Insight’s analyses?

A: This is one of the main business opportunities and one of the particularly important questions we receive from our clients. It has also represented a big opportunity to demonstrate the company’s ability to impact sustainability through its analyses. For example, in the hydrocarbons industry, most emissions do not come from production but from the consumption of oil and gas in the transportation sector. This is one example of why the company places ESG as an extremely critical factor. S&P Global Commodity Insight can evaluate what oil and gas-producing companies can do by also following the transportation sector and the penetration of electric vehicles (EVs) because as a society we should all be interested in reducing emissions. All the projects we have regarding ESG issues are growing in scope and size.

Q: What importance does the company place on sustainability and how does it help its clients strengthen their efforts in that regard? 

A: S&P Global is a data and analysis provider. Going further, it also provides tailor-made consulting. Using its data, S&P builds the best information bank regarding emissions in every sector so that clients can compare their portfolios with others around the world. This includes emission intensity per barrel of oil or cubic feet of gas so that companies can compare which assets have higher emissions and evaluate investments to tackle this issue. S&P also provides the solution in this case. Other than E&P, the company tracks industrial activity and closely monitors the development of hydrogen.

Q: What main industry trends have emerged in recent years in Mexico? 

A: Upstream activities in Mexico have been continually active as all projects are going forward in their exploration work. Amazingly, non-PEMEX operators have made around 22 discoveries since 2015. PEMEX has naturally done more during this period but the total 2P reserves estimated from those 22 discoveries represent more than 50 percent of the total resources that have been incorporated. Exploration contracts are doing great and there are still many wells to be drilled. Looking at deepwater activity, it has been all about private operators in the past years. PEMEX changed its strategy and is focusing its activities on shallow-water and onshore developments, while private operators are tackling the deepwater environment and generating a wealth of information about the basins there.

However, Mexico has not seen any new licensing rounds, which has created a hole in development because the activity we see now is inherited from previous rounds. In the next six years, that activity will slow down dramatically due to the lack of new contracts.

Q: In terms of natural gas, what new challenges do you see, especially in the sourcing and distribution area? 

A: Natural gas is the fuel of the energy transition, so it could therefore be a great business. Nevertheless, Mexico’s problem has been legal uncertainty in a market that is starting to open but still very concentrated on CFE, which has the largest contracts with pipelines and power generation. This has made it extremely complicated to compete. What is more, the steps Mexico took to increase competition are being backtracked. This does not create the most favorable conditions, even though the market’s potential remains stellar, even more so because gas is very likely to remain important in the future. Since the completely clean renewable power coming from wind and solar sources are intermittent, gas may be needed for backup electricity generation, and given the size of Mexico and its power and gas market, there will still be significant room for gas. Furthermore, natural gas should replace the liquefied petroleum (LP) gas used in homes. In all our scenarios, gas is the most resilient fuel for the coming 30 years, unlike oil, which is expected to decline.

Q: How has the imminent operation of the Dos Bocas refinery impacted the mid- and downstream markets?

A: The reality is that Mexico will continue to import gasoline and diesel, even if the demand for these fuels is not picking up and the other six refineries are working to their full potential.Refining is a complex business, making it competitive in a world that is looking forward reducing hydrocarbons consumption is not easy. S&P has high expectations for Dos Bocas, which could operate to the highest operational standards, but the challenge is to look into the whole Pemex refining business, if it could improve efficiency, cost and profitability in a market which is reshuffling globally. .

Q: How has the relationship between PEMEX and S&P Global evolved? 

A: The concerns of PEMEX are often the same as any other client, so we are still working closely with the NOC on issues of costs, low-carbon initiatives and finance mechanisms. PEMEX is also looking to become more competitive in refining. S&P Global is helping PEMEX understand long-term scenarios regarding the demand for gasoline, natural gas, oil and diesel. One of the key drivers in the long term is oil remaining in the market linked to the petrochemical and chemical sectors, as oil shifts away from the transportation sectors. PEMEX is not in a bad position to make these changes but the NOC must move now to survive in the long term. 

S&P Global is working with PEMEX in several areas, especially surrounding the energy transition. We want the NOC to succeed as a crucial player in Mexico. Moreover, S&P still works with CNH, and has a collaborative relationship with SENER since years ago.

S&P Global Commodity Insights provides strategic analysis to help clients evaluate business opportunities throughout the entire energy value chain, from upstream to power generation.